revenue bond

noun

Definition of revenue bond 

: a bond issued by a public agency authorized to build, acquire, or improve a revenue-producing property (such as a toll road) and payable out of revenue derived from such property

Examples of revenue bond in a Sentence

Recent Examples on the Web

If all that money is spent on other items before construction begins, lawmakers will also approve a backup plan: $756 million in lease revenue bonds. Melody Gutierrez, SFChronicle.com, "California lawmakers call in a $1.2 billion wrecking ball for their offices," 12 June 2018 As a result, the comptroller in late May released $278,000 to Amalgamated Bank of Chicago, trustee for the revenue bonds, Pallasch said. Zak Koeske, Daily Southtown, "Harvey cuts deal for $1.3M in withheld taxes, escapes financial crisis for now — but city still owes millions," 8 June 2018 The largest category of borrowings were revenue bonds, at $15.5 billion, followed by general obligation bonds at $10.3 billion. Russ Wiles, azcentral, "See where taxpayers are on the hook for the most debt in Arizona," 24 June 2018 The financial profile of the city of Hallandale Beach has received a lift from Fitch Ratings, which recently affirmed its high grades for the local government’s general obligation bonds and capital improvement revenue bonds. David Lyons, Sun-Sentinel.com, "Bond ratings, new projects signal positive financial outlook for Hallandale Beach," 20 June 2018 The company is expected to request an additional $10.5 million in industrial revenue bonds for other projects under a master agreement with the city. David Twiddy, kansascity, "Olathe council approves public assistance for West Market center | The Kansas City Star," 16 May 2018 Completed in a little over a year, the project was funded through air travel fees, general airport revenue bonds and airport cash. Jennifer Van Grove, sandiegouniontribune.com, "Facial recognition tech speeds up customs at new San Diego airport facility," 28 June 2018 Investors buying revenue bonds are paid back with money generated by specific projects or facilities, such as roads, power plants or stadiums. Russ Wiles, azcentral, "See where taxpayers are on the hook for the most debt in Arizona," 24 June 2018 Unlike countries in Europe, U.S. airports can issue revenue bonds on a tax-exempt basis, a strong incentive against using private capital. Daniela Altimari, courant.com, "This Republican Gubernatorial Candidate Has Big Plans For Transportation. But Will They Work?," 18 June 2018

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'revenue bond.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

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First Known Use of revenue bond

1856, in the meaning defined above

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Last Updated

1 Oct 2018

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The first known use of revenue bond was in 1856

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More Definitions for revenue bond

revenue bond

noun

Financial Definition of revenue bond

What It Is

Revenue bonds are municipal bonds that are issued to fund specific projects that generate their own revenue.

How It Works

Let's assume ABC Town wants to build a new toll road, but it doesn't have the money to fund the construction. It could issue revenue bonds, and the tolls collected from the toll road would fund the interest and principal payments. If the revenue from the toll road is insufficient, ABC Town might not be able to make timely interest and principal payments. In many cases, revenue bond issuers can avoid or delay interest payments if a minimum amount of revenue is not generated from the project.

Revenue-bond holders generally have no claim to the project’s assets (i.e., they cannot repossess the toll road if it does not generate the promised interest and principal payments). Revenue bonds may also have catastrophe call provisions, which allow the issuer to call the bonds if the revenue-producing facility is destroyed. Thus, revenue bonds generally warrant a higher yield than general obligation bonds to compensate for these added risks.

Revenue bonds usually have $1,000 or $5,000 face values. They usually pay interest semiannually, although some are zero-coupon bonds. Typical maturities are one to 30 years. Many are serial bonds, and many are callable or putable, and some have unusual payment schedules. The issuer sets forth the terms of the debt in the indenture agreement.

Revenue bonds are typically issued the same way corporate bonds are: through an underwriter that presents a written prospectus to buyers and facilitates a competitive bidding process. After the bonds begin trading, municipal bond dealers across the country earn spreads by acting as intermediaries between buyers and sellers. Although purchasing specific revenue bonds and other municipal bonds gives investors direct control over which bonds they hold and the location of the issuers (thus maximizing tax advantages), mutual funds and municipal bond investment trusts are the most common way to invest in revenue bonds and other municipal bonds.

Municipal bonds, in general, rank between agency bonds and corporate bonds in risk and return. As with all debt, they are subject to credit, interest-rate, call, and market risk. To mitigate default risk, some issuers carry private insurance on their bonds (investors can also purchase this insurance). In some cases, a federal agency might guarantee or insure a revenue bond issue. Some issuers also back their bonds with a commercial bank letter of credit or escrow funds.

Why It Matters

One of the largest advantages of investing in revenue bonds is that the interest is usually exempt from federal taxes and most state and local taxes if the investor lives in the state or municipality issuing the debt (capital gains on municipal bonds are taxable, however). Although investors subject to the alternative minimum tax may be subject to taxes, for the most part the exemption means that investors in high federal-tax brackets benefit from revenue bonds and other municipal bonds. This is why there is usually stronger demand for revenue bonds and other municipal bonds in high-tax states (although this demand in turn lowers the yields of these bonds relative to those issued in low-tax states).

As with all bonds, revenue bond prices rise when interest rates fall, and fall when interest rates rise. Inflation can cut significantly into a revenue bond's modest returns (relative to corporate bonds), although variable-rate revenue bonds do offer some protection against this.

Pending or suspected tax legislation can dramatically affect the value of revenue bonds. Remember, the higher the marginal tax rate, the more valuable a revenue bond's tax exemption is. If a state or the federal government reduces tax rates, revenue bonds lose some of their advantage for high-tax-bracket individuals (and thus become less valuable). Another risk is that the IRS may decide to tax municipal bond income or revoke the exemption of a particular issue.

Source: Investing Answers

revenue bond

Legal Definition of revenue bond 

see bond sense 2

More from Merriam-Webster on revenue bond

Britannica.com: Encyclopedia article about revenue bond

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